The Albanese government is poised to announce close to $1 billion in additional savings and funding shifts within the Australian Public Service (APS) and the Defence portfolio as part of its mid-year budget update, aiming to manage a growing deficit.
Targeting Contractor Spend and Non-Wage Costs
Treasurer Jim Chalmers will detail the measures in the Mid-Year Economic and Fiscal Outlook (MYEFO) this week. Finance and Public Service Minister Katy Gallagher confirmed that $400 million will be saved in the 2025-26 fiscal year by cutting back on contractors, labour hire, and non-essential expenses like travel and hospitality.
This forms part of a broader $20 billion in savings the government is pursuing to offset new spending pressures. Senator Gallagher stated the move is about ensuring reliable public services. "Responsible budgeting means stronger, more reliable services," she said. "Delivering savings isn't just good fiscal management, it's about guaranteeing that the services our communities depend on remain strong and sustainable."
Defence Reprioritisations Amid Major Spending Hikes
Despite committing an extra $70 billion for defence over the next decade—including for the AUKUS submarine pact—the MYEFO will also include $574 million in "reprioritisations" within the Defence portfolio. This indicates a reallocation of existing funds rather than a net cut to the overall defence budget.
The government faces the challenge of finding $25 billion to fund unavoidable expenditures in areas such as veteran support, natural disaster responses, and the aged pension. Dr Chalmers acknowledged the difficult decisions, stating his team had faced "a lot of hard yards" to make room for commitments while attempting to avoid going "substantially backwards."
Breakdown of the $20 Billion Savings Plan
The government's wider savings strategy, totalling $20 billion, includes several key measures:
- $1.8 billion from returning social security deeming rates to pre-pandemic levels.
- $882 million from advocacy reforms and tightened program integrity at the Department of Veterans' Affairs.
- $425 million in uncommitted funds from the Hydrogen Headstart program, to be reinvested in other low-emissions technologies.
- $286 million from enhanced Child Care Subsidy integrity activities.
The Albanese government claims it has already converted 11,800 external labour jobs into APS roles and delivered $5.3 billion in savings from reduced external labour spending during its first term.
Defence Overhaul and Future Implications
This fiscal tightening coincides with a major restructure of the Defence Department. Defence Minister Richard Marles recently announced the creation of a new Defence Delivery Agency, which will consolidate several key acquisition and sustainment groups. The agency, to be fully operational by July 2027, will report directly to ministers and has not ruled out potential redundancies.
Dr Chalmers emphasised the government's approach, stating, "This midyear budget update will be defined by economic responsibility." He highlighted the need to fund commitments in housing, mental health, and infrastructure while exercising "considerable spending restraint."
